Building a savings account with enough money set aside for emergencies can seem like an impossible goal.
It is generally recommended to have anywhere from 3 months to a year’s worth of cash that is available should the need arise. Considering how many people live from paycheck to paycheck, the idea of having a savings account with that much money untouched can seem like a dream. While it won’t be easy, it is possible. The benefits are numerous. If you have money in your savings account available for unexpected expenses, you are not left putting surprise auto repair bills on a credit card, which you must repay at a high rate of interest. You also cannot overlook the emotional toll of living paycheck to paycheck.
Even if it is not something you think about day to day, it is something that weighs you down. Knowing you have a cushion if something should come up gives you a sense of peace and security. The first step to building your savings account is to understand that during the building process, there will be some pain involved.
You are going to look for areas to cut in your budget, and you are going to cut them out. That doesn’t mean everything will be miserable. There are also some ways to find savings in your budget that are pain-free, and that can be rewarding. Keep your goal on the finish line. Don’t start with the idea of saving a year’s worth of expenses, instead make your first goal a three-month cushion. Seeing that your goal is attainable provides positive feedback and helps you avoid burnout.
Consider Refinancing
If you are a homeowner, consider refinancing your mortgage. If you have student loan debt, that can be refinanced as well. Use an online mortgage or student loan refinancing calculator to give yourself a preview of how much money you could save. The refinancing process is straightforward, and your savings can be significant.
Take a Hard Look at Fixed Expenses
Most people view fixed expenses as just that, fixed. Many of your expenses do have some flexibility built-in. When it comes to saving on expenses, there are a variety of ways to lower your insurance costs for example, from bundling home and auto insurance together, to seeking out bids with each renewal.
Another consideration is about what you use. There is no need to drop all of your subscription and streaming services, but just keep what you genuinely use. An added benefit is that, once you drop a service, you are often offered excellent deals as the company attempts to lure you back. You can rotate through several streaming services if they each offer something you enjoy.
Move Your Money
Once you start making strides in how much you’re able to improve your savings account, you don’t want to leave it sitting there doing nothing. Keep the bulk of your savings in a high-interest savings account. This gives you the benefit of being accessible if you genuinely need it, but allowing you to earn interest while doing so. The interest rate on these accounts is not as high as many investment opportunities, but the money is FDIC-insured, and you have immediate access to your funds. Even if your bank offers a high-interest savings account, you may prefer to open an account at a different bank, just to help separate your every day funds and your emergency funds mentally.